Assignment Number 1 – Case Study on Hershey’s
"Hershey’s information systems are providing the necessary data to support the transformation of the organization and business
processes. The successful upgrade to SAP R/3 4.6 was a critical element of our strategy."
-Hershey Foods VP and CIO George David in an Aug. 29, 2002, news release
Hiding problems in your business can land you in jail, but revealing them, even if there’s no deliberate malfeasance afoot, can get
you in a lot of trouble too. Especially if the problems have some connection with software and aren’t well understood.
When candy giant Hershey Foods former CEO and Chairman Kenneth L. Wolfe told Wall Street analysts during a conference call
in September 1999 that the company was having problems with its new order-taking and distribution computer system? a $112
million combination of software from ERP maker SAP, CRM provider Siebel and supply chain software from Manugistics? he
didn’t offer any details. He did say, however, that the problems were going to keep Hershey from delivering $100 million worth
of Kisses and Jolly Ranchers for Halloween that year. (Hershey said in August that Accenture and SAP helped its IT teams
complete an R/3 implementation.)
Back in 1999, of course, it was a terrifying new prospect for investors to consider: Could a failed computer project take down a
Fortune 500 company? Hershey’s stock price fell more than 8 percent on that September day, and the computer system mystery
made the front page of The Wall Street Journal. Analysts didn’t fully trust Hershey’s ability to deliver candy until the following
fall, when things had long been back to normal.
It was the beginning of the dark ages for enterprise software, in which every press story about enterprise software mentioned
Hershey’s mysterious affliction. Hershey was the first confirmed case that terrified everyone into thinking that anyone who
touched enterprise software was doomed to the same fate.
Even in 1999, however, enough details about the difficulties of other enterprise software implementations had leaked out that
analysts could have seen that Hershey’s only real failure was its timing? the system went live right about the time when orders
were pouring in for Halloween, and they couldn’t be fulfilled. Other than that, Hershey’s experience was pretty average. Studies
have shown that most companies that install enterprise software are late, their business processes suffer temporarily, and their
revenue can take a hit for as long as six months.
Today, Wall Street analysts don’t bother about Hershey’s computer systems. "We were hypersensitive to the system problem
back then, but now it’s a nonissue," says Richard Joy, senior investment officer for Standard and Poors, a New York City-based
research company. He thinks Hershey now may even be a little better at delivering candy than it was back then.
So when Hershey issued a press release in August saying that it had completed a successful upgrade of its SAP ERP system, we
figured the company might want to end the 3-year-old mystery. But we couldn’t get an interview.
More and more, CEOs are going to have to talk intelligently about their computer systems during quarterly conference calls with
Wall Street? if they can’t do it well, investors, analysts and the press will bash their companies, probably harder than they
deserve. Most companies hide their problems with computer systems from public scrutiny. "I tell my clients never to talk about
the problems," says Jim Shepard, senior vice president for AMR Research in Boston. "The thing Hershey can be faulted for was
to announce that they had blown ERP as justification for missing earnings."
But it’s getting harder to hide computer systems from Wall Street. Software systems run the business now. And if problems are
hidden they can fester and explode in an even bigger mess. If there is a lesson in the Hershey soap opera, it’s not that companies
should hide their computer system problems; it’s that CIOs have to help their CEOs do a better job of explaining the problems
and outlining the solutions.
QUESTIONS
1. What was wrong with respect to Hershey’s selection of implementation strategy of an
integrated ERP Environment?
2. How adequate was the scheduling for the ERP implementation project? What is the learning
outcome with respect to timelines of the project?
3. Was the planned Go-Live Date appropriate for ERP implementation? What is the learning
outcome with respect to planning for a Go-Live Date?
4. What was the compromise that the implementation team made at Hershey’s from the ASAP
implementation methodology perspective?
5. List down 3 consequences that may arise in any ERP project as a result of the compromise that
the Hershey’s implementation team made.
6. What was the key mistake that the CEO of Hershey’s made during the conference call with Wall
Street Analysts in September 1999?
7. Identify the different dimensions where the company bore a financial hit in order to adopt an
integrated ERP Environment? Also state the magnitude of such financial hits.
8. Why did the Hershey’s stock price fall as a result of failing at the ERP implementation project?
9. List down 5 Critical Success Factors for any ERP Implementation Project?
10. If you were the CEO and Chairman of Hershey’s back in 1999, what would be your press
statement to the Analysts of Wall Street to avoid a negative Share market impact? Your answer
should be between 50 to 100 words.
Instructors: Faraz Ahmed Quddusi & Muhammad Asif Jaffer
Course: Enterprise Resource Planning
Class: Post Graduate Diploma – Supply Chain Management
